In Froom v. LaFontaine the Ontario court considered a unique question: If a corporation is the registered owner of land, and a person posing as an officer and director obtains a mortgage on its behalf, is that mortgage a “fraudulent instrument” by a “fraudulent person” under the Land Titles Act? More importantly, is that mortgage legally unenforceable?
In this case the corporation, which was set up in 1998 by a husband and wife, purchased a condominium in 2003. However by 2006 the corporation was cancelled for failing to file its corporate tax returns. The spouses eventually went to jail for unrelated fraud charges and had a turbulent relationship thereafter. In 2010 – at a time when the husband was the sole shareholder, officer and director – the wife (Lafontaine) had the corporation revived. She did this without the husband’s authorization. Then in 2014, again without the husband’s knowledge or consent, she arranged for a change notice to be filed in the provincial corporations register, to make it appear she was the corporation’s sole officer and director. After holding herself out as such, she entered into a $300,000 mortgage/loan agreement with a lender.
The mortgage went into default in 2019, and the lender took steps towards enforcement. The corporation essentially disavowed the mortgage, and wanted it deleted from title. Among other things, it claimed that Lafontaine did not have the authority to obtain the mortgage; she was accordingly a “fraudulent person”. By extension the mortgage was rendered void as being a “fraudulent instrument” under the provincial Land Titles Act (LTA).
The lender applied to the court for summary judgment, and was successful on that narrow issue. Under the strict wording of the LTA, Lafontaine was not a “fraudulent person”, the court ruled. That definition covered only those who were either a “fictitious person” (meaning someone who did not really exist), or who had fraudulently held themselves out to be a registered owner; here, Lafontaine only held herself out to be an officer and director. There was no legal principle to render these two different situations equivalent. Lafontaine had also not forged the mortgage in the traditional sense.
The court noted that the intent of the LTA was to provide the public with security of title. Its provisions were aimed only at certain fraudulent activity, not at real estate fraud in general. It targeted those situations where someone purports to transfer an interest in land that they do not legally possess, for example by taking on a false identity or by forging a document.
The court granted the lender judgment on the mortgage, together with a writ of possession over the mortgaged condominium. See Froom v. LaFontaine, 2022 ONSC 2930. (An application for leave to appeal to the Supreme Court of Canada was dismissed, see 2022 CanLII 78985 (S.C.C.).